Q4 2024 Reddit Inc Earnings Call
Good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's fourth quarter and full year 2024 earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one.
Speaker Change: Thank you. I would now like to turn the call over to Jesse Rose, Head of Investor Relations. Jesse, you may begin your conference.
Jesse Rose: Thank you. Good afternoon, everyone. Welcome to Reddit's fourth quarter and full year 2024 earnings conference call. Joining me today are Steve Huffman, Reddit's co-founder and CEO, Jen Wong, Reddit COO, and Drew Vollero, Reddit CFO.
Jesse Rose: Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, and actual results may vary materially from those contemplated by these forward-looking statements.
Jesse Rose: Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in our SEC filings.
Jesse Rose: These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statements.
Jesse Rose: During this call we will discuss both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial measures is set forth in our letter to shareholders.
Steve Huffman: Our fourth quarter letter to shareholders and accompanying earnings press release are available on our investor relations website Investor.redditinc.com and investor relations subreddit r slash r DDT and now I'll turn the call over to Steve
Speaker Change: Thanks, Jesse. Hi, everyone. Thank you for joining and welcome to our Q4 earnings call.
Steve Huffman: The fourth quarter marked the end of a milestone year for Reddit, our first as a public company.
In 2024, we surpassed a different
Steve Huffman: Unknown DAUQs and gain traction in several new countries around the world.
Steve Huffman: Over nearly two decades, our users have created a trove of knowledge about all aspects of the human experience, making Reddit one of the largest repositories of human-generated information online. And we're using AI to make this content accessible to everyone.
Steve Huffman: Machine translation is rolling out in eight languages, with more on the way, and is enabling international users to participate in their favorite communities and find the information they seek. International growth is critical to our goal of Reddit being a global platform.
Steve Huffman: Over 40% of internet users consider recommendations on Reddit the most influential factor in purchasing decisions, surpassing expert reviews, influencer endorsements, and aggregated star ratings.
Steve Huffman: Reddit conversations are where interests meet intent. They inform purchase decisions and offer valuable spaces for brands to connect with people looking for trustworthy opinions.
Steve Huffman: We finished the year with 101.7 million DAUQ, marking 39% growth year-over-year, led by strong international growth at 46%.
Steve Huffman: Additionally, logged in users grew 27% and they've grown at this rate or higher every quarter for the last year and have maintained a steady upward trend for the last two years.
Steve Huffman: Late in Q4, we did experience some volatility from Google search triggered by a periodic algorithm change.
Steve Huffman: But traffic from search has recovered so far in Q1 and we've regained momentum.
Steve Huffman: What happened wasn't unusual. Referrals from search fluctuate from time to time and they primarily affect logged out users. Our teams have navigated many algorithm updates over the years and did an excellent job adapting to these latest changes effectively.
Steve Huffman: This particular swing was interesting, because along with it we saw a corresponding increase in the query term Reddit, which suggests users are searching with the specific intent of reaching Reddit, and this propensity continues to rise.
Steve Huffman: We typically see two types of users on RETM. Those who scroll and those who speak.
Steve Huffman: Growlers engage with Reddit for its core community and conversation products, while seekers come to or end up on Reddit for answers to their questions.
Steve Huffman: Just a few years ago, adding Reddit to the end of your search query felt novel.
Steve Huffman: Today, it's a common way for people to find trusted information, recommendations and advice.
Steve Huffman: Regardless of why or where a user starts their journey, they should have a seamless path to discovering what they need on Reddit.
These search trends provide insight into what we should prioritize.
Steve Huffman: To improve the experience for seekers, we're focused on making on-platform search a truly first-class product and the go-to place to find information on Reddit. In the U.S., we launched the Beta for Reddit Answers, an AI-powered search tool that provides curated summaries of community discussions.
Although it's still in its early stages.
Steve Huffman: It's already proven versatile, as people turn to it for everything from local updates about the LA wildfires to opinions on the best coffee maker.
Steve Huffman: When it comes to answers, we see that Reddit excels at providing insightful responses to questions with subjective answers that are difficult to find elsewhere.
Steve Huffman: It's currently only available in English, but we're excited about how people are using it and the early promise of this product.
Steve Huffman: Human perspectives have never been more important and we've updated our mission statement to reflect this.
Steve Huffman: Our updated mission is to empower communities and make their knowledge accessible to all.
Steve Huffman: This captures both our work in creating a platform for community and for using Reddit as a source for knowledge.
Steve Huffman: With this mission as our guide, we are focused on making Reddit faster, easier, and better to use, whether you're an avid user or a first-time visitor deciding, for example, what backpack to buy.
Steve Huffman: Our role is to enable any community to exist and thrive on Reddit by helping make them useful, accessible, and well-moderated.
Steve Huffman: By strengthening our unique community model, we ensure that Reddit is for everyone, everywhere.
Steve Huffman: Thank you again for being a part of this journey. Together, we are building a platform that connects the world through shared knowledge and perspectives.
And with that, I'll pass it to Jeff.
Jeff: Thanks, Steve. Hello, everyone. It was a strong quarter and finish to the year for Reddit. Our unique proposition and core platform improvements continue to drive differentiated growth and positive outcomes for advertisers.
Jeff: Total revenue in Q4 grew 71% year-over-year to $428 million, and for the full year, revenue grew 62% year-over-year to $1.3 billion.
Jeff: In Q4, the advertising business grew 60% year-over-year to $395 million, driven by broad-based strength across objectives, channels, verticals, and geographies.
Let me discuss our ad revenue drivers in more detail.
Jeff: Our strategy is to be a multi-objective ad platform, and in Q4, we grew across the funnel. We saw strength in brand advertising, the top of the funnel revenue, growing the fastest rate in over three years.
Jeff: Mid and lower funnel revenue accounted for about 60% of total ad revenue and drove more than half of the year-over-year growth in the quarter.
Jeff: Across channels, our scaled business, which includes mid-market and SMB advertisers, continues to be a growth driver as we are activating new advertisers across both the U.S. and EMEA regions and tuning our product set to better address these performance-oriented advertisers.
Jeff: We saw broad growth across verticals, with 10 of our top 15 verticals growing over 50% year-over-year, led by finance, retail, auto, pharma, gaming, and tech.
Jeff: Across geographies, international ad revenue grew 77% year-over-year, the fastest growth in over two years and led by the UK and broader EMEA regions.
Jeff: We saw a double-digit year-over-year growth in impressions from underlying user growth, personalized ad loads, deeper engagement, and improved monetization of the conversation page, while pricing was mostly consistent with the prior year.
Jeff: Average impressions per user increased year-over-year as we benefited from ad placement and brand safety optimization work from prior periods.
Jeff: The ads and comments placement contributed about 3% of impressions in the quarter. We continue to test this new format and expect this could reach up to mid-single digits percentage in the near term.
Jeff: Revenue from the Cyber Five Week during the holiday period grew over 60% year over year. This was driven by a combination of first-time brands and existing retail customers who increased their spend with us.
Jeff: Now moving to our ad stack, can we continue to focus on one?
driving performance of our ad solutions across objectives.
Jeff: Two, improving usability for our advertisers and productivity for our sales force. And three, offering our advertisers Reddit unique solutions and app formats.
Jeff: We made meaningful progress against each of these areas in Q4.
Jeff: We continue to improve the contextual relevance of ads on the conversation page, which drives higher conversion volume and performance revenue. In Q4, we doubled click volume for the fourth consecutive quarter and also doubled conversion volume in the second half of the year versus the first half.
Jeff: We also continue driving CAPI conversion API adoption with onboarding improvements and new integration partnerships.
Jeff: The share of conversion revenue covered by CAPI tripled in the second half of 2024 versus the prior year.
Jeff: Advertisers see a 25% reduction in cost per action when they adopt Cappy with Pixel compared to Pixel only.
Jeff: Second, improving usability for our advertisers and productivity for our sales force.
Jeff: Next is how we continue to invest in Gen AI as a driver of productivity and performance.
Jeff: In 2024, we launched our AI Headline Generator and acquired Memorable AI, both of which are driving more adoption for mid-market and S&B advertisers, enabling dynamic campaign creation and providing more predictive insights into creative performance.
Jeff: We recently launched an LLM-powered ad review system, which increases automated ad review by 70% and decreases review time from 30 minutes to 1 minute, enabling advertisers to run campaigns faster while also improving ad quality and safety.
Jeff: We also expanded brand safety measurements to both IAS and Double Verify. With the IAS launch in Q4, we tested the solution against more than 500 million impressions in North America, and found Reddit to be over 99% brand safe.
And third, offering advertisers Reddit-unique solutions and formats.
Jeff: We are developing products that leverage Reddit's community intelligence that can help businesses grow. Insights, Reddit ProTrends, and advertising solutions that leverage community signals.
Jeff: As we announced at CES, we began testing Reddit ProTrends, a tool that helps businesses uncover real-time insights and build an organic presence on Reddit.
Jeff: To date, we've seen thousands of advertisers adopt Reddit Pro and seen participating companies posting and engaging more on the site within communities.
Jeff: Next, I'll shift to our content licensing business. Reddit's content is a unique source of authentic insights and perspectives that is valuable to our users, advertisers, researchers, and our content licensing partners. In Q4, we entered into a partnership with Intercontinental Exchange to develop new data and analytics products for the financial industry.
Jeff: This partnership explores a new market vertical for our content licensing business and connects anonymous conversations on Reddit with intercontinental exchanges' infrastructure to provide financial customers with insights into market trends and sentiments.
Jeff: More broadly, we remain diligent about who we partner with, and we will do so when it's complementary to our business, and we are investing in building our own products around our content, including Reddit Answers and Reddit Pro, that reveal the authentic insights and recommendations that are unique to Reddit.
Jeff: Okay, looking ahead, I'm pleased with the progress we are making in building a multi-objective ad platform that enables businesses of all types and sizes to be successful on Reddit.
Jeff: Our opportunity is as big as ever. Reddit covers every topic and interest, and we believe every business can find value on Reddit.
Jeff: The ad market feels healthy and we're monitoring events that could impact the broader industry and the evolving EU privacy landscape.
Jeff: I believe we're well positioned heading into 2025, and I'm excited about our roadmap.
Jeff: In the year ahead, we'll focus on three areas that build on our progress to date. First, delivering more Reddit-unique experiences and communicating value across objectives.
Jeff: This includes bringing more ML optimization to our brand objectives, as well as Reddit unique formats that bring in more context and engagement from communities, and more product catalog features for shopping. We believe all of this work can augment performance.
Jeff: Second, bringing more automation to our ad stack. We're in the early stages of exploring end-to-end automation across our performance objective. We believe this can help drive performance and lower the barrier to adoption while enabling us to continue to sustain our high marks in customer service.
Jeff: Third, continue to grow and diversify our advertiser base. We've made good progress diversifying the business, broadening verticals, having customers use multiple objectives, and adding more advertisers, all of which increase the resiliency of our business.
Jeff: We believe there's significant opportunity to bring many more advertisers to Reddit via lead generation efforts like Reddit Pro, partnerships, easier onboarding with features like dynamic creation and campaign import, and then retaining these advertisers with strong performance outcomes.
Jeff: Overall, I'm proud of our progress and excited about the opportunity we have to continue growing our share and driving outcomes for advertisers. Thanks for joining and for your continued support. Now I'll turn the call over to Drew.
Thank you, Janet. Good afternoon, everyone.
Drew Vollero: Q4 was a strong ending to a solid opening year for Reddit.
Drew Vollero: Once again, Q4 was our highest revenue quarter of the year, driven by five key financial storylines that have been consistent throughout 2024. They are specifically, first, growing revenues faster than peers. Revenues grew 71% for the quarter.
Drew Vollero: Second, scaling profitably. Adjusted EBITDA hit $154 million in Q4, and gap net income reached $71 million.
Drew Vollero: Third, expanding margins. Gross margins hit 92.6% in Q4. Adjusted EBITDA margin hit 36% and our net income margin was 17%.
Drew Vollero: In the quarter, our incremental adjusted EBITDA margin was 74 percent.
Drew Vollero: Fourth, generating positive cash flow. Operating cash flow reached $90 million and free cash flow margin was 21%. We had positive cash flow all four quarters in 2024.
Drew Vollero: and fifth, minimizing dilution. Total diluted shares actually fell sequentially to $206.2 million in Q4. Our earnings per share more than doubled from Q3, helped by a stable share count.
Drew Vollero: Let me provide a little more color on these highlights. First, Q4 revenues of $428 million grew 71% year-over-year, driven by a ramp in ad revenue, which grew 60% year-over-year in Q4, up 4% sequentially.
By region, the U.S. grew 70% and international grew 76%.
Drew Vollero: Marking the first time international growth outpaced U.S. growth since mid-2023.
Drew Vollero: For the quarter, let me summarize three key drivers for revenue acceleration. First, we're continuing to see success with our revenue investments.
Drew Vollero: which include building new products for our ad platform or adding new sales team members to increase customer coverage.
Drew Vollero: Second, we saw a strong gain in ad impressions while overall ad pricing was pretty consistent with last year. Impression gains remain our primary objective and these increases were driven by user growth, improved ad click-through rates, and new ad surfaces like comments.
Drew Vollero: And third, we saw strength across the ad funnel, led by high double digit growth rates from performance advertisements, which now comprise slightly less than 60% of our revenue.
For the year, revenue ended at $1.3 billion, up 62%.
Drew Vollero: Now on the cost side, total adjusted cost growth was 21%.
Drew Vollero: Q4, similar to Q3, but some notable differences in two key areas, cloud hosting costs and hiring pace. Let me comment on each.
Drew Vollero: In Q4, we signed revised agreements with our key hosting providers, which positively benefited gross margins over 150 basis points this quarter, a key factor in driving our gross margins to 92.6%.
Drew Vollero: Over time, we continue to see both cost opportunities and challenges in the future for gross margins. We believe these new arrangements will likely serve to help offset future cost increases, which we could see from increased user growth, machine learning investments, or new initiatives like search.
For the full year, gross margins were 90.5%.
The second area worth a brief mention was hiring pace.
Drew Vollero: which accelerated slightly in the quarter driven by our growth investments in ad tech sales and search
Drew Vollero: Total headcount was up 5% sequentially and 11% for the year. We ended the year with 2,233 heads, up slightly more than 200 people net for the year.
Drew Vollero: Differentiated revenue growth and modest cost growth meant we were gap profitable again in Q4 and a key focus is to turn profitability into cash flow.
Drew Vollero: Q4 cash flow was $90 million, $107 million change from a year ago.
For the full year, operating cash flow was $222 million.
Drew Vollero: Our CapEx remained very light. Less than 1% in the quarter, excuse me, less than 1 million in the quarter, less than half a percent of revenue.
Speaker Change: Pre-cash flow for Q4 was $89 million and $216 million for the year.
Speaker Change: Cash in the Balance Sheet ended at $1.84 billion, up $96 million sequentially.
Speaker Change: The total number of diluted shares outstanding in Q4 was 206.2 million, down 1% sequentially, and only up 1.1% for the year, excluding the IPO, well below our 2-3% dilution target.
Speaker Change: Shares were slightly lower, driven in part by a net settlement of a portion of employee-vested shares as well.
Speaker Change: Stock-based compensation in Q4 was $97 million, about 23% of revenue in line with peers at this scale, but slightly higher than the prior quarter, reflecting a full quarter of expense from our annual performance grants.
Speaker Change: The Accelerated Hiring Pace and Increases in Taxes for Stock Vesting and Exercises
Speaker Change: and the fourth quarter net income was 71 million or 40 cents per basic share and 36 cents per diluted share.
Speaker Change: EPS more than doubled from the prior quarter, where basic earnings per share was $0.18 and diluted earnings per share was $0.16.
Speaker Change: As we look ahead, we'll share our internal thoughts on revenue adjusted EBITDA for the first quarter, which is where we have the greatest visibility.
Speaker Change: In the first quarter of 2025, we estimate revenue in the range of $360 million to $370 million, representing 48% to 52% year-over-year revenue growth, with a midpoint of 50%.
Speaker Change: In Q1, we could see slightly elevated sequential SBC costs due to higher employer taxes depending on share price volatility.
Speaker Change: So Q4 was an important proof point for the medium and long term financial goals we outlined in our last call.
Simply put, we are focused on scaling profitably.
Speaker Change: and turning differentiated revenue growth, high margins and low CapEx into meaningful cash flow generation. We delivered on all those dimensions in the fourth quarter, but there is much more to do and many more opportunities for progress.
Speaker Change: As we enter 2025, these financial goals will remain our North Star.
Speaker Change: We've seen the positive impact revenue growth can have on our financial performance.
Speaker Change: The keys to continued differentiated revenue growth will be innovation and execution, as they were in 2024.
Speaker Change: That concludes my comments. Now let me turn the call back over to Steve.
Okay, thanks, Drew. Thanks, Jen.
Steve Huffman: We posted in the RDDT subreddit, as we have in past quarters, to get questions from the community, from our user investors. We will take a couple of those questions now. Again, we do this because we want to include our user investors in as many of these questions.
Speaker Change: formal conversations as possible alongside the pros. Jenju and I will also record answers to many more of the questions after our call today. Those will be posted tomorrow morning in that subreddit. Okay, first question is for you, Jen.
Speaker Change: I've noticed a substantial increase in the quality and quantity of ads since Q3. How focused are you on developing new types of ads going forward, and how could these potentially differentiate Reddit from other platforms?
Thanks for your question.
Speaker Change: When we think about building ad formats, we always want to leverage what's unique about Reddit. And I think about two things. One is community intelligence, the trove of opinions and recommendations that are on Reddit that are really trusted, and the engagement and interest on Reddit.
Speaker Change: So you saw that in, you know, last year we launched the the placement ads and comments. This page is growing in engagement. It's early, but we like what we're seeing there in terms of performance, so we're excited about that placement.
Speaker Change: In terms of formats, you know, I'm excited to work on enhancing our AMAs or Ask Me Anything. That's very unique to Reddit where there's a two-way engagement and conversation between a brand and our community. Also excited about shopping.
more work in terms of product level creative.
and Dynamic Product Optimization.
Speaker Change: And then finally, there's something we've long wanted to do, which is bringing in signals from the community and their perspectives into ads to provide more context. And I think all of the above can augment both brand and conversion performance, and we're excited about the work.
Speaker Change: Okay, thanks, Drew. Second question is for you. Q4 showed strong profitability, but full year 2024 still ended in a major loss. How confident is Reddit in maintaining or expanding profitability in 2025?
Unknown Speaker
Speaker Change: Thanks for the question. Really liked the question. Gap profitability is something that really matters and we're focused on that. I think, let me divide the question in a couple parts. Let's talk about the 484 million dollar loss.
Total in 2024.
Speaker Change: I think if you double click on that, you'll see that we lost $575 million in the first quarter.
Speaker Change: Related to stock based compensation. What's happening there is you're recognizing your charges for the last multiple years to catch up charge for the stock that you've been giving employees for a long time.
Speaker Change: So you can't expense that as a private company the way that we structured that stock. So we had all of those catch-up charges. So that's really what drove the loss in 2024. The last three quarters, we were profitable on a cumulative basis.
Speaker Change: That's why when I look at sort of evaluating the health of a company, I'm always looking at three statements. I'm looking at the income statement that you're looking at. I'm always looking at the cash flow statement, the balance sheet. We provide an EBITDA metric as well. That also gives you kind of a look on how the financials are going. We've been EBITDA profitable for the last three quarters. So I think those are the ways that I look at the business. In terms of the trends, I think they're good to us. As I mentioned, obviously, 71% revenue growth in the quarter. The margins are strong here. Revenue has been growing three to five times as fast as cost.
Speaker Change: Those are all good signs that the business is scaling in a very positive way. And then obviously, most importantly, we made 71 million this quarter. Last quarter, we were gap profitable, we made about 30 million. So last couple of quarters, you're reaching scale on the business and watching the profitability inflect. So appreciate the question. Those are my thoughts to you.
Great. Steve, Jen, Drew, thank you.
Speaker Change: For any other additional questions, please requeue and your first question comes from the line of Ron Josie with City Please go ahead
Ron Josie: Great, thanks for taking the questions. I had questions for, I guess, all three of you, but first and foremost, Steve and Jen, I want to ask about Reddit Answers, just wanted to hear about early results.
Speaker Change: Unknown Speaker Maybe some insights on the rollout and then what types of queries are you seeing with this more conversational search format? Clearly there's a lot of data and insights to glean with the data on Reddit. So any insights on what you're seeing thus far in rollout? And then, Steve, you mentioned sort of some insights or some changes in Google search algorithm.
Speaker Change: We'd love to hear any thoughts on what the change was. Was there any impact to engagement, maybe revenue? That would be helpful. Thank you.
Speaker Change: Okay, I'll take both of those. Thanks, Ron, great to hear from you. Okay, so first, Reddit Answers. So we turned this on in December, and it's basically a prototype. So it's a beta, and the purpose of getting this online was to answer the question of...
Speaker Change: actually kind of a couple questions. How deep is Reddit's corpus and are there compelling answers to a broad set of questions? The answer to both of those tests is yes. I think we're off to a very promising start.
I think even I am.
Speaker Change: learning and excited at the depth of the answers here. For example, there are things that I could ask for the answers that I feel like I don't get good coverage elsewhere online. So I've done it with a number of authors. What's the best way to get started reading this author?
Speaker Change: Tell me what the fan theories of Severance Season 1 were in preparing for Season 2. And you get to kind of relive that whole conversation or those conversations that played out on Reddit three years ago.
Speaker Change: The thing that's interesting about Reddit is the core product, the community and conversation product, you're really only interacting with like the last day, the last 24 hours of content.
Speaker Change: But in those conversations, for 20 years, our users have left this absolutely massive and deep corpus of information about everything.
And so we're starting to unlock that with answers.
Speaker Change: Okay, so where is this going? We'll continue to iterate on this product, but really the work here right now answers is
in the app from a separate place than search.
Speaker Change: Over time, over this year, we actually want there to just be one product, which is Reddit Search.
Speaker Change: that will help users navigate Reddit, find subreddits on Reddit, and even answer, you know,
Speaker Change: Subjective, hard, interesting questions. And so we want to bring all these things together, but we wanted to get this answers functionality out fast. And so that's why it came out as its own thing. So I think just a ton of promise there. We're really excited about where that's going.
Speaker Change: Okay, your second question was about Google as a third-party provider, like these changes happen, they actually happen all the time, I'd say ballpark twice a year, not the first, not the last.
Speaker Change: For us, it primarily affects logged out users in the U.S. And this one is particularly interesting because it really was a swing down, but then a recovery shortly thereafter. Happened right at the end of the quarter.
Speaker Change: It was kind of interesting during this one. The team recovered, you know, I think adapted nice. We see these things, you know, for all sorts of different reasons.
Speaker Change: We did see an increase in the query term Reddit in our own search dashboard, which says that kind of despite what happens on the Google side, Internet consumers broadly want to end up on Reddit.
so
Speaker Change: As we've mentioned, we started off Q1, I think, on a great foot, both with our search traffic and then also with the rest of our traffic. And I think in Q4, we grew in all the areas that count. Logged in users up 27% and it's been that way for over a year. International itself starting to pick up steam at 46%. So we like where we're at and we like the way things look going forward.
Thank you for watching. See you next time.
Speaker Change: Your next question comes from the line of Justin Post with Bank of America. Please go ahead.
Speaker Change: Great, thank you. A couple more follow-ups on search and maybe one for Drew.
Speaker Change: Can the tools on Reddit do a lot more than what Google can do now? And then second, how do you think about those searches' commercial relevance? Is there a percentage or a thought about how much of that search content could be monetizable? It would be very interesting, because you've given us the queries, which is really helpful.
Speaker Change: And then, Drew, any thoughts on cost growth for the year? I don't know if you can give us anything on how you're thinking about headcount or any cost directions for the total year. Thank you.
Okay, we'll do me, search, Jen, search monetization through cost.
Speaker Change: The reason Reddit searches is interesting is because we're the only search provider who is focusing exclusively on Reddit, right? Other search engines are general. They call the entire Internet.
Speaker Change: and, you know, our relationship with Google has been, you know, really good and deep and continues to be symbiotic, but Reddit is one of many content providers on the Internet.
Speaker Change: and what we know is that reddit or internet users broadly want what's on reddit and what we're learning with answers is that there's even more on reddit than I think we even believed six months ago for this type of behavior the the seeker behavior
Speaker Change: And by focusing on Reddit specifically, we can do things like what we're doing in Reddit Answers, which is every fact that Reddit Answers responds with.
links to a specific Reddit comment.
that was written by a human being. And so...
It's a set of highly annotated answers.
Speaker Change: And so you can read that sentence, get your answer, but you can also click on it and actually see the whole conversation.
Speaker Change: where you can get the conversation about it. And so I think this is really, really interesting for things like recommendations, travel, advice, where there isn't an answer. There are lots of answers, and there's lots of conversations about it.
Speaker Change: And there's an added benefit that we're seeing in answers, which is
Speaker Change: After you read your answer at the bottom, you see where the answers came from. So there will be a whole bunch of posts, and there will be a bunch of subreddits.
Speaker Change: And so it actually helps you expand your interests on Reddit.
Speaker Change: And so I was telling you before about the authors. I'm not going to name the authors, but I've now joined the subreddits for a number of different authors. I found all these communities. I've been on Redd for 20 years, and I'm still finding new communities.
Speaker Change: Just really excited about what we can do when we build something on Reddit, specifically for Reddit.
Speaker Change: So I think there's a kind of an opportunity in the market.
Speaker Change: Jen, do you want to take the commercial opportunity? Yeah, I mean Reddit is actually inherently commercial in so many ways.
Speaker Change: About 40% of the posts are actually we classify this like really commercial being about products and services but in a lot of ways like
Speaker Change: joining an interest, starting skiing. I mean, that is commercial in that there's gear and things that you want as you start up an interest. So I think Reddit just naturally has that. What's interesting and exciting about Reddit Answers is this idea of recommendations.
and what Reddit Answers does is reveals
Speaker Change: The recommendations in a way that shows what's the opinions across all of Reddit.
Speaker Change: And that's an incredible opportunity because that's, if you think about search, search is incredibly high intent and people are really in the mindset of wanting to convert on that recommendation.
Speaker Change: So, the more that we build experiences like Reddit Answers that put people in a mindset of...
Speaker Change: You know, if you think about what we're building, we're building shopping.
Shopping is product-level, ad-creative.
We already have the foundation in.
Speaker Change: Keyword targeting, which is around contextual. Those two pieces allow us to create a monetization opportunity at the time that it makes sense. This is an early product test, but the foundation is there for us to monetize that intent as the product develops.
Speaker Change: Justin on on the cost side of things I think we found a new level here in the last couple of quarters
Speaker Change: If I look at, you know, kind of total adjusted costs, third quarter, fourth quarter, and then the guide here, kind of in that 20% range, that's where the business has been in terms of year-over-year cost growth. We're not guiding further out than that because the revenue visibility isn't more than a quarter at this point. We're still at a place.
Speaker Change: where we're, you know, within the quarter trying to earn about half of our business, right? And so it's hard for us to give a kind of a full year guide, but I think overall you have the places that we're investing in. I think the pace of hiring will probably be slightly accelerated from what it was the prior year. Last year we added a little bit more than 200. We're still hiring a little bit more on the engineering side. We're building a small search team here, so there will be investments there. But I also wanted to speak to, you know, there's a lot of in-year discussions here.
Speaker Change: Investment Projects that have helped accelerate our revenue growth and so that's really dynamic information that we're looking at so it's hard to kind of give a full year guide but
Speaker Change: Your next question comes from the line of Benjamin Black with Deutsche Bank. Please go ahead.
Benjamin Black: Great, thank you for taking my question. Just just a follow-up on other answers
Benjamin Black: Have you seen an impact on retention, on engagement, or even on sort of logged-in conversion and longer term? Does Reddit answer potentially alter the way you think about data licensing more broadly?
Benjamin Black: And then just a quick one on, you know, on sort of the year ahead, you know, how do you think about the balance of U.S. user growth versus ARPU growth and, you know, across the two, which one do you think you have the most visibility on? Thank you.
Benjamin Black: Okay, thanks, Ben. So on answers, I think too soon to tell on things like retention. It's only in English. It's, it's not even on all platforms yet, or it's just barely on all platforms. And so it's truly, you know, right out the gate. So we're more of testing kind of the
Benjamin Black: The technology and the potential from a product point of view, that's all looking very promising.
I think if we were to
Explain how this would lead into retention.
What I'm very excited about is...
Benjamin Black: The general user journey on Reddit is, they're often coming to Reddit as seekers. So that's what I was talking about in my opening statement. They're often coming from Google with a question and then learning that Reddit has answers to their questions.
I think.
Benjamin Black: Helping the user be able to search directly on Reddit, refine their queries on Reddit, eventually come directly to Reddit for those types of queries, even integrating search into something like onboarding over time, I think would all be really interesting things.
Benjamin Black: for us to try as on-platform search gets better and better. And so I think it opens all sorts of doors, and just about everything we do on the product is in the name of improving retention.
Benjamin Black: But I think the number one retention challenge for Reddit is, you know, a user shows up to Reddit and we help them find the perfect, you know, community or communities for them, well that's a search problem. So search will get at that over time, that's really the point.
Benjamin Black: In terms of licensing, I think what you're seeing here is, you know, we're still in the market, we're still
Benjamin Black: kind of capture the value of the data ourselves. And so again, that's how we arrive at something like written answers, like, hey, this corpus is really amazing.
Benjamin Black: Sure, we can help other people build good products and good models, but we can build the best product, our data, and that should be our focus as well. So we're doing all of these things. So yeah, we're still in the licensing business. But also, I think, very excited about all of the things that we can build.
on our data as well. And then in terms of
Benjamin Black: user growth and ARPU growth. I'll spend 10 seconds on users.
Benjamin Black: I think we still have a tremendous amount of opportunity on users.
Benjamin Black: We haven't come, I think, close to tapping out in the U.S., which is our most mature market. And we're really getting off the ground in a number of countries around the world.
Benjamin Black: Communities are universal. So we see a very high potential in building a product that is literally universal.
Benjamin Black: Everybody belongs to communities. Everybody wants that feeling of belonging. Everybody has questions.
Benjamin Black: Everybody's going through life's journey and those things are all on Reddit.
Unknown Speaker 0
The way we get there.
is to think, we've talked about performance.
Benjamin Black: Quality, some of these new products like search, it's actually kind of touches on both of those things. And of course, things like machine translation in our community, or excuse me, country growth efforts around the world. I'll turn it over to Janda to talk about our crew looking forward.
Speaker Change: So, as we've mentioned before, we, you know, we don't manage the ARPU, there's nobody who...
Speaker Change: But the way we think about it is we're trying to grow revenue by continuing to expand our verticals, drive performance, make our ad platform easier so that we have more advertisers on it, driving more demand into our platform that grows our share as we continue to also grow users in parallel.
with the ARPU in.
Speaker Change: Both the U.S. and the rest of the world, they grew in Q4, are still very early and the ARPU for the rest of the world is just a fraction of the U.S., so there's a lot of opportunity for growth there.
Speaker Change: But again, we think of it as really growing our revenue, growing our share.
and Users in Parallel.
Speaker Change: You know, you see that the user growth has been a really nice driver of value for us as well as some of the...
Speaker Change: Brand Safety and the personalized ad load work. And there's a lot more there in addition to the ad format work that we did adding ads in common. So there are a lot of different levers that we have for augmenting monetization.
Speaker Change: Your next question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.
Brian Nowak: Thanks for taking my questions. I have two, one for Steve, one for Jen.
Brian Nowak: Steve, I want to talk to you about the initiative that you have in place to continue to convert the logged out users to logged in users. Maybe talk to us about where you've made the most progress in 24. And as you look at 25, what are you focused on internally to sort of continue to convert the logged out to logged in?
Ron Josie: And then Jen, I know there's a lot of advertising initiatives in 2025.
Ron Josie: Can you just help us understand a little bit, when you look across your pipeline of products, what are some that are sort of the lowest hanging fruit areas of improvement versus areas where it is a little bit of a higher climb that could take a little longer to sort of manifest itself in the P&L? Thanks.
Speaker Change: Okay, Brian, thanks for the questions. So logged out to log in.
Ron Josie: So big picture the way that we think about it is Reddit is universal and let's start with the U.S. first.
Ron Josie: If Reddit has a community for everybody, and it does, then why isn't everybody on Reddit? Well, I think there's two reasons. Either they haven't heard of Reddit, which is increasingly less likely, or they've tried Reddit and it didn't work for them.
Ron Josie: That is the cohort of users that we are focused on.
Ron Josie: And so those users are either coming from, you know, external search like Google or they're coming to Reddit's Front door, right? They're going to reddit.com or they're opening the app
Ron Josie: Those folks who come direct and logged out, that is where we are the most aggressive. Because what they're saying to us in that moment is, I am open to joining this platform.
Ron Josie: And so the work we've done there that's been most effective.
Ron Josie: as we've made it much, much easier to log in. It used to be very hard. We used to lose 80% of our sign-ups on the choose a username stuff. It was a neat grinder. It's much, much smoother now. You can log in and register with an email, with a phone number, with a...
Ron Josie: with Google or Apple. So really, really fast login, and then much improved onboarding from there. So what are your interests? And we get you into the home feed.
Ron Josie: Our ML in the home feed, our ability to take your interests and expand them or show you more related subreddits, that's gotten much better.
Ron Josie: So that's kind of now the top driver of, for users to join new communities on Reddit. And that's the number one driver for retention.
Ron Josie: So that stuff has been working very well in 2024. Now, if you're coming from search,
We actually used to be more aggressive.
Ron Josie: You come from Google, which say, hey, you know, download the app, log in.
Ron Josie: That is a classic case of, it works in the short term, it moves the numbers.
Ron Josie: and it doesn't work in the long term. It annoys people, makes them mad, and it actually tapers off. So we actually go the other direction. If you're coming from search, we want to give you the answers.
Ron Josie: We're trying to make our customers happy. What are they there for? Answers, give them answers. They're not looking to join a community in that moment.
Ron Josie: And so our work there and looking forward is can we make Reddit amazing at giving them answers?
Speakers.
Ron Josie: That's having reddit search itself be amazing so users can learn that they can ask these specific questions on reddit This idea of building products for the seekers not just the scrollers is so important to us that we Expanded our mission to include it. And so that's what I mentioned in my opening remarks
Empower communities and make their knowledge accessible to all.
Ron Josie: So a lot of what we're doing requires us to think about each of these use cases specifically. So that's what leads to logging in, that's what leads into higher retention.
Okay, Jen, the question was about
What's the easy stuff, what's the hard stuff in 2025?
Yeah, you know, in terms of the roadmap,
Ron Josie: Things that are, I think, more lower hanging fruit, I mean, things that we know work, right? ML, applying ML optimization, applying models to brand, which we don't do extensively today, that has worked so well in performance.
Ron Josie: I think applying that to brand can deliver really significant performance for our appetizers. We know that formula works.
So really applying ML for Opto.
Ron Josie: Second is measurement. There's work that we want to do around conversion modeling, really getting credit for the value that we're driving. That's really important moving to industry standard there.
Ron Josie: So you'll see us do that work. And then finally, creative optimization, you know, the work that you do in optimizing variants and creative can have such a
Ron Josie: significant impact on performance. And that's something you grind away at, you know, for forever, frankly. But that also is, I think, an opportunity for us. It's not an area that we spent that much time on so far, but we're excited to do that this year.
Ron Josie: The rest of our roadmap, I think, is, you know, again, the ads roadmap is about continuous improvement in terms of ease of use, in terms of performance for our advertisers, and in terms of Reddit-unique opportunities. And you'll see us continue to grind away at that.
Speaker Change: Your next question comes from the line of Rich Greenfield with LightShed Partners. Please go ahead.
Rich Greenfield: Thanks for taking the question. I got a few that I think are, you know, some of the key questions investors are concerned about.
Rich Greenfield: What exactly did Google change in the algorithm? I think there's been a lot of you that sort of Google loves Reddit and was sort of prioritizing Reddit. So what exactly changed? And I guess, Steve, how do you get comfort or confidence that future changes are not going to be more problematic than this one?
Rich Greenfield: I think Stevie said that the Google change was mostly logged out users.
Rich Greenfield: As we think about that, is there any way you could sort of give us what was Q4 adjusted for the Google algorithm change so we could see what the underlying growth is to think about what the implication is for Q1? I apologize for the three questions, but thanks for taking them.
Rich Greenfield: All good. Thanks, Rich. Okay. Why did Google change? I have my suspicions, but it's not my place to say, but I'm not worried about it. Number two, assume no revenue impact. Correct. No revenue impact.
Rich Greenfield: And three, what was the, you know, adjusted down Q4? What's it look like in Q1? Look, I can't put specific numbers on it, but I don't think we'd be having this conversation if not for the swing there. And we feel very good about, you know, the pace that we're on in Q1. Like I said, look, we see.
Rich Greenfield: We see volatility from Google all the time, as does everybody. You can read the blogs a couple times a year. Our relationship with them is great. We collaborate in a number of ways, including how they can continue to crawl us better. So there's zero concern from us in this department.
Speaker Change: Your next question comes from the line of Ken Garalski with Wells Fargo. Please go ahead.
Thank you very much. Two if I may first.
Could we talk maybe, Jen, about
Speaker Change: As you think about your initiatives to grow the advertiser count, can you talk about the progress you've made maybe in the back half of 24, and initiatives that maybe you have in place in 25 and 26 to grow that advertiser count, including maybe focus on the self-serve side?
Speaker Change: And then the second is, I just want to go back to the to the search aspect and maybe approach from a different angle, which is
Speaker Change: the intent and signal that that it may drive across the platform.
Speaker Change: Could you talk a little bit about the power of search and maybe even the power of...
Speaker Change: of growing engagement on the Be Answers platform and its ability to drive improved conversion and intent across the rest of the platform. Thank you very much.
Speaker Change: So I can take the first one about active advertisers. So we continue to see really healthy year-over-year and quarter-over-quarter growth. We saw that in Q4 for our monthly active advertiser count.
Speaker Change: So that diversification continues. Again, there's many more advertisers that can be on the platform, but we're pleased with the progress there.
Speaker Change: What's unlocking that is a combination of things. One, our focus on ease of use.
Speaker Change: in terms of the onboarding, in terms of activation, just making it much more simple to activate. Things like a Gen AI headline generator just takes the friction out of getting creative, up and running on the platform, automating, you know, being able to optimize for like max clicks or lowest cost click, those kinds of semi-automations allow smaller advertisers to get on the platform.
Speaker Change: As a reminder, our strategy is not focused on self-serve right now.
Speaker Change: We do have a very nicely growing, scaled business and mid-market in S&B, but they are managed.
Speaker Change: They're managed in that we do give them some treatment, very light treatment to help them through the process. It's worth it in terms of the average revenue for Apertage that we see and helps with their retention and engagement.
Speaker Change: and we're focused on growing those what we call sort of filtered tier one tier two SMBs.
Speaker Change: but that's been growing really, really nicely. And there's a lot more that can be on the platform. We will continue that drive into 2025.
Speaker Change: We will be doing work at the top of the funnel to acquire more advertisers. So.
Speaker Change: We've been doing that in terms of, you know, the acquisitions team that we sort of established embedded in pods in mid market last year, that'll continue this year, as well as top of the funnel, some paid marketing, work in SEO around our business website, building relationships with
Speaker Change: partners who work with small businesses who we can then bring leads into our platform. Developing Reddit Pro, which is a landing spot for businesses where they can have a presence on Reddit, get to know the platform and then become advertisers.
Speaker Change: So these are all the ways that we're starting to expand our work on the top of the funnel for bringing in new advertisers.
Speaker Change: Okay, and the second part of your question was about search and opportunities for Sigma. I mean, this is why search is so amazing. I was just talking about how the key to retention for Reddit, which is the foundation for growth, is
figuring out what users are interested in.
Speaker Change: Well, with search, they're literally typing into a box, this is what I'm interested in.
Speaker Change: So it's amazing for us to pick up on that signal. And then of course, they actually click on it, right, they find their interest on Reddit. So not only do they tell us
Speaker Change: They find subreddits that they can join and follow. So it's amazing from that point of view.
And of course, that signal.
Speaker Change: is incredible monetization potential, as you all know. So search is one of those things where it's a product that is great for new users, for the reasons I just mentioned.
Speaker Change: It's great for core users like myself, you know, I search on Reddit every day.
Speaker Change: and it's great for monetization. So it's not every day we get a product that's fun to build that scratches all of our itches. So we're very excited about it.
Speaker Change: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.
Eric Sheridan: Thanks so much for taking the question. It may be a two-parter on the international side of the business. When you think about your strategic priorities,
Eric Sheridan: or where the business sits internationally relative to domestically. How do you think about the runway for either user funnel optimization or monetization and building more density around the advertising initiatives globally, as opposed to what you've proven out more domestically, just to think about contrasting the business by geographies. Thanks so much.
Eric Sheridan: Okay, part one, I18 users, part two, I18 dollars. Okay, so I18 users.
Eric Sheridan: What, oh, I think at the very beginning there. So Reddit is roughly 50-50 US versus non-US.
Eric Sheridan: Years in the space are 80 and 95 percent not U.S.
Eric Sheridan: We have no reason to believe that we won't be in that range.
Eric Sheridan: because Reddit is universal, because communities are universal. So I think the opportunity is there. Now, everything we've talked about...
Eric Sheridan: Today about growth is really it's about kind of the quality and performance and search
Eric Sheridan: Those things not only help us grow in the U.S., our most mature market, but helps us grow outside the U.S. as well. Product quality always works.
Eric Sheridan: Now, in addition to that, we have a couple of initiatives that I think are very promising. We've talked a number of times about machine translation.
Eric Sheridan: The first country for us to deploy this in was France. France, even within our focus markets countries, which themselves are outpacing the rest of the world and the U.S., France is growing, you know, 30 to 40 percent faster. That's because they've got machine translation first.
Eric Sheridan: We're rolling it out into a half a dozen languages right now and more throughout the year and the cost of that has come down so we'll just continue to
Eric Sheridan: continue to expand that. And then there's our community work. So we have people in country identifying topic areas, for example, sports, cities, you know.
Eric Sheridan: important kind of cultural areas, making sure communities exist, recruiting moderators, training moderators, doing meetups, all the kind of high-touch diplomatic work, and we're doing that in a number of countries around the world as well.
Eric Sheridan: so the potential is there because communities are universal and our work is working. Now it's very high touch work because we're growing communities right we can't force it but it's coming along nicely and then the revenue will follow the users.
Eric Sheridan: Yeah, I would just say we follow the users and we do have markets like the UK which are getting to be more mature markets for us and similar to what happened in the US.
Eric Sheridan: It works for advertisers globally, so they get the benefits of all the performance gains and the ease of use.
that we've built into the platform.
Eric Sheridan: We are investing in marketing in EMEA to acquire more advertisers.
Eric Sheridan: And we have invested in growing our go-to-market teams, again with a focus on acquiring more advertisers and bringing more customers onto the platform.
Eric Sheridan: And as you saw in Q4, you know, that growth rate that we saw from EMEA, you know, is a result of some of the investments that we made. So we feel very good about the opportunity there.
Krista, I think we have time for one last question.
Speaker Change: That question comes from Laura Martin with Needham and Company. Please go ahead.
Speaker Change: And I'll just stick to one since we're up against time, and it's on DeepSeek. So DeepSeek, as you know, a lot of my companies are moving over to DeepSeek and their large language models, and also you're seeing Facebook hit all-time highs. Both of those are open source.
Speaker Change: So my question for you is, both of the deals you guys have are with proprietary
Large Language Models, Google, and OpenAI.
Speaker Change: My question is, are you using these open models to help with your content creation for your customers?
Speaker Change: and or does it threaten your revenue stream coming from your content licensing if in fact open large language models win the battle of large market swaps? Thank you.
Speaker Change: Okay, thanks. Two great questions. So the first question, let me just kind of cut it in half. Are we using it, period? Yes.
Speaker Change: You know, we and every company except for two on earth love open source AI models. And so I think a tremendous amount of opportunity there.
Speaker Change: And look, we use commercial models, we use open source models, we make our own. And so I think what we're seeing happen is exactly what we said would happen two years ago.
Speaker Change: Access to this technology will become commoditized, open source will keep pace with the commercial offerings, and ultimately it will be accessible to everyone.
search.
Speaker Change: The second part of your question, which is how does this impact our opportunities of licensing, the short answer is it does not. Like every foundation model that exists
Speaker Change: including DeepSeek and including the models that DeepSeek stole from, used Reddit data. So that's something that that we've accepted. These models do not exist without Reddit data. But what we are selling is ongoing access to up-to-date information.
Speaker Change: Imagine a search engine that stopped indexing in 2021. It gets less and less useful over time. The same thing is with a foundation model.
Speaker Change: If it stops getting new information, it just gets less and less relevant over time. So you need a steady supply of up-to-date information. And Reddit is a supply of information about all aspects of the human experience, right? AI can't, you know...
Hello.
Speaker Change: Try a new hair dryer or listen to headphones and tell you what the experience is like.
Speaker Change: but users on Reddit can and do. And so that sort of information is super valuable. AI can't tell you what it's like to go through a breakup and what you should do. That information comes from Reddit. So I don't see any change there. In fact, it's actually no change from the situation we are already experiencing. And we're very excited about the open source models.
Speaker Change: Great, thanks Steve, Jen, Drew, thanks everyone for joining. We appreciate you all spending some time with us and we look forward to speaking again soon.